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Key Takeaways
- President Trump's unpredictable tariff policies have nudged stock volatility to its highest level in years and hammered nearly every corner of the stock market.
- Experts say a 90-day pause on "reciprocal" tariffs, announced on Wednesday, reduces some of the uncertainty hanging over markets and boardrooms.
- While there is still considerable uncertainty, many experts remind investors that panic selling can often be beneficial to long-term investments. This was evident in the last week and half.
President Trump's unpredictable trade policies have pushed stock volatility up to its highest level in years, creating substantial uncertainty and, some say, opportunity on Wall Street.
Stock volatility spiked last week after President Trump announced sweeping new tariffs. The tariff rate in the United States would reach its highest level since more than a century. The Cboe Volatility Index, also known as the fear indicator, nearly tripled from Trump’s announcement of tariffs last Wednesday to Monday morning when stocks opened their lowest level in over a year. The VIX is still high despite the historic stock rally that took place on Wednesday after Trump delayed almost all tariffs. On Friday, the VIX index traded above 40 for the sixth consecutive day, a level that it only reached once in 2023 and 2024.
The White House’s unpredictable trade policy is reflected in the volatility of the stock markets. Trump has repeatedly announced, delayed, escalated and watered-down his tariff threats during the first few months of his presidency. This has left businesses and consumers on edge. According to AlphaSense’s analysis, the number of times “chaos” has been mentioned on earnings calls and corporate conferences has risen dramatically in recent weeks.
Markets will continue to be plagued by uncertainty
According to Kristian Kerr of LPL Financial’s Head of Macro Strategy, the 90-day pause will help reduce the risk that is hanging over the markets. He noted that countries and companies can negotiate lower rates in the next three month. “In essence, the uncertainty has been lessened a little,” he said. But the erratic US policy will remain a concern and keep uncertainty high compared to norms until there is more clarity on trade policies.
Wall Street expects a lot more changes and twists in the months to come. The 90-day pause may provide companies with a more clear backdrop for their guidance and offer some relief to a hungry market,” wrote Gina Bolvin of Bolvin Wealth Management on Wednesday. “However, uncertainty remains over what will happen after the 90-day period. This leaves investors to deal with potential volatility.”
Long-Term Investing Opportunities are Emerging
Both Bolvin and Kerr recommend that investors take a long-term view. Kerr said that the record-breaking trading volume on Friday and Monday was evidence of “emotional sell-offs” taking over. “When valuations reach irrational heights, investors who think long-term can take advantage of opportunities.” “Dislocations of this kind can offer opportunities to purchase solid assets at prices reflecting panic rather than reality.”
Bolvin wrote that he empathized with those who sold yesterday and are watching the rebound now from the sidelines. This highlights the importance of remaining fully invested, especially in a market that is as reactive and headline driven as this.
